OECD says defined contribution scheme needs 'careful' regulation after losses
22 July 2009
Analyses the impact of different quantitative approaches to regulating investment risk on retirement income from DC schemes, as the ongoing financial crisis had led to pension funds in countries with mandatory DC systems experiencing losses of 20-25%.
The paper assesses the impact of different quantitative approaches to regulate investment risk on the retirement income stemming from defined contribution (DC) pension plans.
It looks at how such regulations affect the spectrum of investment policies available and, through this channel, how they affect the retirement income that an individual may expect from a DC pension plan.
The analysis shows that there is a trade-off between potential retirement income and protection from bad outcomes. Reducing the downside risk on retirement income from DC pension plans requires moving into relatively conservative investment policies where the share of assets allocated to bonds may be quite large.
© OECD
